An LLP agreement is a contract between partners that outlines their rights and obligations and provides a framework for company operation. It is not required by law but is considered good practice. LLPs offer limited liability and partnership structure, allowing for flexibility in business operations. Typical sections of an agreement include handling profits and losses, day-to-day operations, adding new members, and partner departure. Predefined legal standards apply if an agreement is not adopted.
A limited liability company agreement (LLP) is a contract between the partners of a company that sets out their respective rights and obligations and also provides a framework for the operation of the company. The agreement is not required by law to be written in most jurisdictions to protect the substantial interests of the partners, mainly because there are often predefined legal standards that will apply. It is commonly considered good practice to adopt a written LLP agreement, as it will supersede any default legal provisions that may be enforced by the jurisdiction.
An LLP is a type of corporate entity that is created by licensing statute in jurisdictions in many countries. It is typically used by professionals, such as lawyers or accountants, to protect each professional in a practice group from unlimited liability for business activities. The LLP has elements of both partnership structure and corporate entities. Once practitioners form an LLP, they have the limited liability of a corporation but still retain the benefits of being taxed as an individual under a partnership. If the company is sued in its professional capacity in the ordinary course of business, the partners are liable only to the extent of their investment in the company.
Another benefit of the LLP structure is the ability to run the business as a partnership. Compared to a corporation, a partnership has the freedom to determine how it will be run by majority vote of the partners. It does not have to comply with regulatory requirements, disclose information to investors or undergo oversight through a board of directors. Instead, the partners vote on organizational and operational matters and enter into a contract, called an LLP agreement. This agreement governs the matters contained herein, just like any executive contract, to the extent that the activities do not conflict with the law.
An LLP agreement can address any topic of interest to partners, but there are some typical sections of a standard agreement that attempt to address basic issues and make provisions for common business events. Some of the more important standard parts of an agreement include how profits and losses will be handled, how day-to-day operations will be handled, how new members will be added to the partnership, and what will happen if a partner wants to leave.
Most countries that authorize LLPs also have a Uniform Partnership Act (UPA) which can be used by local jurisdictions as a model for an authorizing statute. Within the UPA and included in many local statutes, there are predefined provisions that address various issues relating to partners and partnerships. If a partnership does not adopt a written LLP agreement, a court will apply these predefined legal standards to decide any dispute between the partners.
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